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Here we will share articles of interest. All members are encouraged to post their own articles, share and comment on others.

  • September 29, 2016 11:56 AM | Anonymous
     



    Click HERE to view the MaineHousing September 2016 Newsletter
  • September 28, 2016 11:45 AM | Anonymous
      About Us | Services | EmployersJob Seekers | Contact Us

    September 28, 2016
    What disqualifies you from being a "Small Servicer"?
    So the Federal servicing regulations were made much more difficult in 2014.  The good news is that many lenders qualified for a regulatory exemption as "Small Servicers." Certainly every lender wants to take advantage of this exemption if possible.
     
    But if you're servicing loans for 3rd parties, does that automatically disqualify you from "small servicer" status?
     
    Three of the bigger issues are discussed below. First note the general rule that to qualify for this exemption, an institution must (1) service fewer than 5,000 loans, and (2) cannot service even a single loan for a third-party (unless you either currently own the loan or originated it).  When I mean "loan," I'm referring to closed-end consumer loans secured by a dwelling. Check out 12 CFR 1026.41(e)(4) for the exact rule.  


    1)  Habitat-for-Humanity Loans
    Some organizations voluntarily service loans for community organizations as charity, and don't accept any reimbursement or fee. Voluntarily serviced loans on behalf of a non-affiliated third-party do not count towards the small servicer determination. 
     
    It may seem obvious, but loans serviced voluntarily for free on behalf of third-party organizations (as long as they aren't an affiliate) won't hurt you with this test. They don't count towards the 5,000 loan test, and are exempt from the requirement of having to originate or own the servicing rights of the loan.

    2)  Fannie/Freddie/FHLB Servicing Retained
    Servicing loans for an investor is NOT a problem here. Loans sold to an investor don't count because the servicer must either currently own the loan OR must have been the originator. So while those loans still count towards the 5,000 limit, they do not count as "third-party loans" because they were originally originated by you. 

    3)  Loans for Another Institution
    These ARE a problem. Even if it's a favor for another institution, if you service even a single loan for another organization that you didn't either originate or currently own (except voluntarily for no fee or compensation as in exception #1 above), then this one loan will destroy your "small servicer" status.  Simple answer?   Don't agree to service a loan for another institution unless you can buy the loan along with the servicing rights.
     
     **Special Note** 
    This part of the Servicing Rule was recently amended by the CFPB.  So if you printed these out last year (or wrote your procedures last year), it's worth a quick look to make sure they're okay. 
     
    In Other News

    • Rattlesnake Island sounds like an edgy reboot of Gilligan's Island ... the problem being it would only be 2 episodes instead of 2 hundred episodes.
    • National MBA in Boston ... October 23-26 ... Hynes Convention Center.
    • Look out on October 1st for my colleague Paul Bates' brand new newsletter, to be delivered to certain clients and contacts on a monthly basis via e-mail. Paul will try to share tips, best practices, and war stories on issues related to banking systems and technology as a courtesy to select friends and other contacts (everyone getting this e-mail will get Paul's, at least to start). Paul, of course, is jealous of the widespread fame and accolades that have rained down upon this compliance newsletter. Now we'll go head-to-head for pageviews (pssh, good luck Bates).  This weekend's premiere newsletter is entitled "The Benefits of a Robust Reporting Library." 

    Know anyone who focuses on the negative (Debbie Downer SNL)?  What is it about complaining that people enjoy so much?  New parents complain about how hard parenting is ... late nights, screaming, etc. Are you flippin crazy? Talk about taking something that should be the highlight of your life and trying to cast it in a negative light.  

    According to one HBR article- available here - https://hbr.org/2012/01/positive-intelligence. - many of these habits can be trained, with training your brain to be positive similar to training your muscles at the gym. The article said that even engaging in one brief positive exercise every day, such as jotting down three things you're grateful for, can have a last impact.  When the author conducted an experiment on an unhappy group of people (KPMG tax managers in NY in December 2008, the worst tax season in decades), this brief exercise followed for 3 weeks had a significant impact even 4 months later.  The author notes "Happiness had become habitual." 
     


    Random poll for today - My colleague Bryan grew up in New Hampshire, but claims to have never seen a moose. (Or maybe I should say he claims to have grown up in NH and hasn't seen a moose).  How many people believe Bryan? How many think that something is fishy with this story?



                                                      _________________


    "Research shows that when people work with a positive mind-set, performance on nearly every level-productivity, creativity, engagement-improves. Yet happiness is perhaps the most misunderstood driver of performance. For one, most people believe that success precedes happiness. "Once I get a promotion, I'll be happy," they think. Or, "Once I hit my sales target, I'll feel great." But because success is a moving target-as soon as you hit your target, you raise it again-the happiness that results from success is fleeting."


    ~ Shawn Anchor
    ____________




    Thanks so much for reading our weekly newsletters.  We're not always going to be perfect, but because we always do our best and try not to overpromise, we hope that we're always going to be trustworthy.  Your calls and e-mails are very helpful - please keep contributing.

      **These are our opinions. We're not authorized, or willing, to express those 
          of others.**  

     

    This article was prepared by Ben Giumarra with the support of other experts at SCA. Ben is a specialist in lending and regulatory compliance.

    SCA has consultants like Ben available to provide as-needed consulting support and advisory services. Specialties include risk management, quality control, system implementations and conversions, secondary markets, financial analysis, and other areas related to mortgage banking. 

    Hourly, retainer, and project-based options available. 

    Quick Links

  • September 21, 2016 11:39 AM | Anonymous
      About Us | Services | EmployersJob Seekers | Contact Us

    September 21, 2016
    Top Mortgage Compliance Trends: Fall 2016 Edition
    Here are the regulatory issues you should have down cold as the leaves change this year.
    So there are a million, or more, compliance issues that a mortgage lender might dream up in the next compliance committee meeting. (Sensing a trend? But there's only so much time in any given workweek, so what are some of the things regulators are actually keying in on?
     
    CFPB Warning:
    First, I would focus on the four topics that the CFPB warned back in 2015 that it would focus on in 2016 examinations. (Expect other Federal and state regulators to generally follow suit).
     
    1)  LO Compensation Plans
    2)  ATR/QM Rule
    3)  TRID
    4)  Marketing Service Arrangements
     
    A summary of that announcement is available here 

    Interestingly, we have not seen tough enforcement of these issues just yet. Despite an incredible amount of national attention to these, especially to the fourth, our internal audits still seem to be much tougher on these areas. If your examination starts tomorrow, I would expect a regulator to ask for your policies and procedures but for that to raise minimal or no concerns. I would not expect a robust loan-level review, for example, of the Ability-to-Repay requirements just yet.
     
    So why do these four still make this list?  Well these are still big issues-high potential for consumer harm and high risk of making mistakes with all new regulatory requirements.  While your every-day regulatory examination (so far) hasn't been heavy-handed in these areas, we predict they will soon. Of course, when this eventually happens later (whether it's next month or next year) the loans reviewed will be those we're originating now and those procedures we currently have in place. 
     
    CFPB Highlights (Summer 2016):
    Second, look to the issues that the CFPB announced in its Summer 2016 examination highlights. Available here
    Here are the top six (in my book):  
     
    5) Incorrect Calculation of Amount Financed.
     
    6) RESPA Section 8 Violations (in general, not just MSAs). Make sure your affiliated business disclosures are accurate and you are not requiring borrowers use services from an affiliate. (These RESPA Section 8 violations are more common than the highly-publicized issues with MSAs).
     
    7) Failure to Provide FCRA Adverse Action Notices.
     
    8) Incorrect Disclosure of Interest-Only Loans. Turns out the CFPB has found a good number of instances (enough to make the top 6 list) where the interest-only portion of a loan wasn't disclosed separately, but rather just included in a standard P&I.
     
    9) Weak Compliance Management System. Remember that your CMS is just generally the process by which you manage compliance risk, not really any different than how the Red Sox have a process for managing the risk of player injuries. How strong is your oversight, your policies/procedures, training, monitoring, independent audit, etc.?
     
    The only specific examples given were related to poor monitoring of automated systems, for example "I didn't know the APR was wrong because the LOS automatically calculates that!"
     
    10) HMDA. The CFPB's summer report noted HMDA "remains a top priority" (huge surprise). Two specific findings included (direct quote):
     
    • For example, examiners found where one or more institutions issued a conditional approval subject to the applicants meeting underwriting conditions, and then the applicants withdrew their applications before the institutions made a credit decision, the institutions incorrectly coded the action taken as "Application denied" (Code 3) or "File closed for incompleteness" (Code 5) instead of "Application withdrawn" (Code 4).
    • In other instances, examiners found that one or more institutions incorrectly coded the action taken as "Application approved but not accepted" (Code 2) instead of "Application denied" (Code 3) after the applicants failed to respond to a conditional approval subject to the applicants meeting underwriting conditions, and did not send the applicants either a written notice of incompleteness or an adverse action notice as required by Regulation B.
     
     
    Other Exam Trends:
    The CFPB isn't the only one out there! Although the FDIC, Federal Reserve, and stage agencies aren't quite as public about their exam trends, pay attention to these other issues that seem to be popular lately:
     
    11) Force-placed flood insurance.  Lenders must force-place flood insurance where insurance becomes inadequate. First, a notice is required. Where the borrower fails to respond in 45 days, the lender can charge the borrower for the force-placed insurance. While this should become less of an issue now that new loans (and some others) are subject to mandatory escrow requirements, there are still issues with refunding borrowers when there is an overlap and identifying that force-placed insurance is needed in the first place.
     
    12) Pricing discrimination. Nothing on the books actually prohibits allowing loan officer's the discretion to price mortgage loans. Nonetheless, regulators are increasingly using statistical tools to show that this practice causes fair lending problems.  
     
    13) Unearned fees. The prohibition against unearned fees is one of the RESPA "twin towers." While this has been around forever (unlike everything else in mortgage compliance, it was not created in 2014), it seems popular this year. A common situation might go like this: In March the lender negotiated a better price for credit reports.  Nice negotiation! But no one changed the amount in the LOS, so borrowers continued paying a higher rate for a month. This is an unearned fee in violation of RESPA and something getting a good amount of attention lately. 



    In Other News: 
    • If you missed this WSJ article from the Spring ... the Big Banks paid $110 billion in fines related to the mortgage crisis - where did that money actually go?
    • Did you see the recent Ocwen jury settlement of $2.5 million plus? Here's one Miami blog summary
    • McAfee stock plummeting yesterday - what happened?
    Everyone have fun last week in Newport? Maybe make some deals or learn something interesting? You know I heard a point of view that had an impact on me. The statement went that, with all this regulatory talk in the past few years, it's suddenly dawning on us that we've neglected some of our actual obligations. How do we increase processing speed? Where can we get more efficiency out of our LOS? How can we get better market penetration for new products? Are we adequately serving the needs of our community? Well maybe it's time to act like mortgage bankers again. To all those that put the hard work in over the past few years, they can go forward armed with a comfortable understanding of the new rules in place. You know John's been saying forever that, "We can't forget who our customers are. They are borrowers, not the regulators. We're working for people who hope to buy a home and close before school starts, or refinance to lower monthly payments. We might be working with regulators, but not for them." 


                                                      _________________

    "Correlation doesn't imply causation, but it does waggle its eyebrows suggestively and gesture furtively while mouthing 'look over there.'"

    -  Randall Munroe
    _____________





    Thanks so much for reading our weekly newsletters.  We're not always going to be perfect, but because we always do our best and try not to overpromise, we hope that we're always going to be trustworthy.  Your calls and e-mails are very helpful - please keep contributing.

      **These are our opinions. We're not authorized, or willing, to express those 
          of others.**  

     

    This article was prepared by Ben Giumarra with the support of other experts at SCA. Ben is a specialist in lending and regulatory compliance.

    SCA has consultants like Ben available to provide as-needed consulting support and advisory services. Specialties include risk management, quality control, system implementations and conversions, secondary markets, financial analysis, and other areas related to mortgage banking. 

    Hourly, retainer, and project-based options available. 

    Quick Links

  • September 21, 2016 11:24 AM | Anonymous


               
     
    Ruling by Maine's Highest Court Mandates that Lender Send Original, Recorded Copy of Mortgage Discharge to Borrower After Recording 
    Client Alert | September 21, 2016
    Once a borrower has paid off a mortgage in full, Maine law requires that the lender execute and record a written mortgage release with the registry of deeds within 60 days. Title 33, Section 551 of the Maine Revised Statutes further requires that the lender shall, within 30 days after receiving the recorded release from the registry, "send the release by first class mail" to the borrower's address. 
     
    In a recent decision the Maine Supreme Judicial Court held that in order to comply with its obligations under Section 551, the lender must send the original, recorded copy of the discharge to its borrower. In Sabina v. JPMorgan Chase Bank, 2016 ME 141, the trial court had ruled that the lender's act of mailing a copy of the discharge to the borrower was sufficient. Specifically, the trial court concluded that mailing a copy accomplished the purpose of the statute, which was to ensure a prompt release of a mortgage once the loan was paid in full. 
     
    With two justices dissenting, Maine's highest court held that the statute unambiguously requires that the lender mail the original, recorded copy of the discharge to the borrower within 30 days after receiving it from the registry. As a result, the case was remanded to the trial court, where damages of $500 plus attorneys' fees could be awarded to the borrower. Unless the Maine Legislature amends Section 551 in response to the Sabina v. JPMorgan decision, lenders must ensure that the original, recorded copy of the release is mailed to the borrower by first class mail within 30 days after it is sent back by the registry. Best practices would dictate that the lender retain proof of mailing in the event of a future dispute.
     
    Please contact Drummond Woodsum Attorneys David Sherman or Jeremy Fischer with further questions.
    800.727.1941 | dwmlaw.com
  • September 14, 2016 11:35 AM | Anonymous
      About Us | Services | EmployersJob Seekers | Contact Us

    September 14, 2016
    What's the penalty for late disclosures? 
    If you deliver a Loan Estimate late, is there a way to fix this?
    In my humble opinion, one problem we have with the regulations in place is that there is rarely a mechanism for fixing violations. Mistakes will happen! So why don't the rules just tell us what to do when a mistake is made? 

    For example, what do you do if you deliver a Loan Estimate late (past the 3 business day requirement). And it happens! A long weekend, confusion over when an app came in, someone on vacation ... do enough loans and stuff like that happens. But what do we do about it?

    Well, as you'd expect, the regulation doesn't say. 

    But, after doing some research, I did find some old guidance from HUD that I think applies. This is from HUD and references the GFE. Of course now we have the CFPB and the LE, but generally the CFPB respects former HUD guidance and I think this still applies.

    So anyway, I found this RESPA Roundup from April 2011 that I think will help if this happens at your institution.  Here's what it says:

    III. Loan originator fails to issue GFE

    If a loan originator fails to deliver a GFE in clear violation of 24 CFR § 3500.7(a) and (b), the loan originator will have significant potential tolerance violations at settlement. See RESPA § 3500.7(e). 

    Where the loan originator has not provided the consumer with a GFE, when completing the HUD-1 comparison chart the loan originator's instructions to the settlement agent must indicate that the settlement agent must fill in the GFE columns with $0 and the HUD-1 columns with the actual charges from Page 2 of the HUD-1. If this results in one or more tolerance violations, the loan originator may cure the tolerance violation(s) by reimbursing the borrower the amount by which the tolerance was exceeded at settlement or within 30 calendar days after settlement.

    As with other compliance areas, loan originators should adopt policies and procedures to ensure that GFEs are delivered timely, in accordance with the requirements of RESPA.


    In other words, failing to disclose an initial disclosure is the same as disclosing $0 for fees subject to tolerance. So the tolerance cure for those fees is 100%. At least that's how I read it. 

    Hopefully that comes in helpful when deciding what to do if this happens to you. 


    In Other News: 
    • Disappointing news at Fenway with the Sox missing out on the Tim Tebow lottery, who signed a contract with the NY Mets last week. Hope that doesn't come back to bite us!
    • You might have heard ITT Tech abruptly closed down? Did you hear of the CFPB's role in that? See here
    •  Hey if you're in Southern Mass., I encourage you to drop by the SNECG monthly meeting for breakfast and to hear my colleague Bryan's speech on the new Military Lending Act. (Important if you're doing automobile and other consumer loan products). Sign up here
    Hey looking forward to seeing many of you in Newport these next few days! If you're in town and want to meet up, John, Steve, and I will be there today and tomorrow. My cell is 518-928-5910 if you want to get in touch. 

                                                      _________________

    "There were approximately 7,000 appraisers in Massachusetts in 2007; today there are about 2,200. Worse, the average age of an appraiser is 58, and since the requirements to become an appraiser were changed to require more training and a college degree, there are few, if any, young people to replace the appraisers approaching retirement." 

    -  Jim Morrison, discussing appraisal delays in his recent article in the Banker & Tradesman, available here.
    _____________





    Thanks so much for reading our weekly newsletters.  We're not always going to be perfect, but because we always do our best and try not to overpromise, we hope that we're always going to be trustworthy.  Your calls and e-mails are very helpful - please keep contributing.

      **These are our opinions. We're not authorized, or willing, to express those 
          of others.**  

     

    This article was prepared by Ben Giumarra with the support of other experts at SCA. Ben is a specialist in lending and regulatory compliance.

    SCA has consultants like Ben available to provide as-needed consulting support and advisory services. Specialties include risk management, quality control, system implementations and conversions, secondary markets, financial analysis, and other areas related to mortgage banking. 

    Hourly, retainer, and project-based options available. 

    Quick Links

  • September 07, 2016 8:54 AM | Anonymous

      About Us | Services | EmployersJob Seekers | Contact Us

    September 7, 2016
    Termination of Private Mortgage Insurance: The short version. 
    Since the Homeowner's Protection Act of 1999, lenders cannot require private mortgage insurance for the life-of-loan. Here's the skinny on this issue. 
    This Rule applies to all loans closed on or after July 29, 1999, but we still get questions about it (or maybe you're new to the industry and/or compliance). Well whatever the reason, here's some info on the Rule requiring automatic termination of private mortgage insurance.
      
    There are three ways where we terminate PMI: by borrower request at 80% LTV, automatically at 78% LTV, and automatically at the mortgage midpoint.
      
    Borrower Requested Termination - 80%
    For borrowers on top of their game, this is the quickest way to terminate PMI. But there are additional requirements. The borrower needs to request the termination; prove that the home's value has not decreased below its original value; and have a good payment history on the loan (among a couple of other requirements). If the borrower fulfills these requirements, PMI must terminate when the LTV reaches 80%.
      
    Calculating LTV - The LTV of 80% may be calculated based on the original schedule of payments or the actual payments made, whichever is better for the borrower (the borrower has the opportunity to make additional payments to bring the LTV down to 80% here). While an appraisal may be required, the LTV is still calculated based on the home's original value (at time of origination). So it won't matter if the current value of the home has skyrocketed since origination.
      
    Automatic Termination - 78%
    Regardless of whether the borrower ever complains, servicers MUST terminate PMI automatically when the LTV reaches 78% if the borrower is current on the loan. Where the borrower is delinquent, PMI must be terminated as soon as the borrower brings the loan current.
      
    Calculating LTV - The LTV is calculated using both the original value and the original payment schedule (borrower is not allowed to make additional payments). Here we cannot require the borrower to pay for an appraisal because the current value is irrelevant to our determination. Actually, we need to be careful because we can't require proof of current value either - there have been CFPB enforcement actions where servicers were too slow to terminate PMI because they were waiting on proof of current value.
      
    Automatic Termination at Midpoint
    This third way that PMI terminates is the most interesting, although probably least likely. Under this Rule, PMI must terminate at the midpoint of the loan term if the borrower is current on the loan payments. So with a 30-year mortgage, that would be the first day of the month after the 180th payment.
      
    I guess the question is, when would this ever happen? When would the borrower be current on mortgage payments after 15 years, but still not be below 78% LTV? Still scratching my head, but maybe with some 15-year mortgage loans? Or maybe some mortgages with an initial interest only period?
      
    **Note that this does not apply to non-private mortgage insurance such as provided by FHA or VA. With these products you can, and do, see some life-of-loan MI requirements. 

    For a more thorough summary of this issue, see the recent CFPB bulletin
      
    In Other News: 
    • Curious how the new Military Lending Act affects your consumer loan platform? Come to the Southern New England Credit Grantors on September 21st and listen to Bryan Noonan's presentation on this new Rule. Bryan's also helping our clients privately by doing an assessment and training on this issue, so e-mail BNoonan@scapartnering.com or call 781-356-2772 to discuss more!
    • We all have bad days, but they're normally not captured for the world to see. A Texas man had a hilariously bad day at work. Spills something down the front of his pants, making it look like he had an accident. Steps outside to get a breath of fresh air in frustration. Gets photographed by the Google maps car and is now publicly available for all to see.
    • E-mail scam costs European company $44 million.  Hackers spoofed some German executive's e-mail accounts and submitted $44 million in payment requests by e-mail to the CFO. The attack was well-planned. The e-mails were sent in accordance with internal procedures and to the only factory that has authority to do money transfers. 
       
    How did other countries respond to the mortgage crisis? After protesters literally stoned the Parliament in 2009, Iceland forgave about 25% of household mortgages to revitalize the economy. They claimed to hold the "world record in household debt relief." This came about through, among other things, an agreement to forgive debt exceeding 110% LTV and also a court ruling that found loans indexed to foreign currencies to be illegal. 

    Some called this a modern day "jubilee." Here's the transcript of an interesting NPR (this one's for you, Rich) interview where an Icelandic citizen explains more. With these mortgages that adjust with inflation, this person claims many mortgages in Iceland jumped up 30%. The government's so-called jubilee provided refunds to offset these increases. So your mortgage jumps from $100,000 to $130,000 but you get a check in the mail for $12,000 from the government.  


    **Hello to everyone today from Iceland! For everyone who is reading this after they printed it out to read, the Internet is a miracle! I have limited access to WiFi (which I'm suspicious that my wife did on purpose), but will certainly get to all your e-mails when I return, if not sooner.**

                                                      _________________

    "All travel has its advantages. If the passenger visits better countries, he may learn to improve his own. And if fortune carries him to worse, he may learn to enjoy it." 

    -  Samuel Johnson
    _____________





    Thanks so much for reading our weekly newsletters.  We're not always going to be perfect, but because we always do our best and try not to overpromise, we hope that we're always going to be trustworthy.  Your calls and e-mails are very helpful - please keep contributing.

      **These are our opinions. We're not authorized, or willing, to express those 
          of others.**  

     

    This article was prepared by Ben Giumarra with the support of other experts at SCA. Ben is a specialist in lending and regulatory compliance.

    SCA has consultants like Ben available to provide as-needed consulting support and advisory services. Specialties include risk management, quality control, system implementations and conversions, secondary markets, financial analysis, and other areas related to mortgage banking. 

    Hourly, retainer, and project-based options available. 

    Quick Links

  • August 31, 2016 9:13 AM | Anonymous

      About Us | Services | EmployersJob Seekers | Contact Us

    August 31, 2016
    Consequences of a Triggering "Higher-Priced" Status?
    For lenders avoiding anything "higher-priced" but possibly considering the possibility, here's a summary of the consequences. 
    Some loans are considered "higher-priced." Do we allow this loan? Is it worth denying the loan outright or perhaps reducing the interest rate? Well that depends on the consequences of a loan being higher-priced. 


    HPML and QM Rules Both Apply
    The term "higher-priced" applies both with the Higher-Priced Mortgage Loan Rules and also the Qualified Mortgage Rules.  As we'll see, the test for what constitutes a higher-priced transaction is mostly the same, but with a special QM rule for small creditors. 

    **Note that QM has a broader scope than the HPML Rules because it will also apply to second homes. HPML Rules apply to all closed-end consumer credit secured by a principal dwelling. QM Rules apply to all close-end consumer credit secured by a dwelling. 

    "Higher-Priced": QM versus HPML Tests
    A loan may be higher-priced for HPML purposes but not for QM purposes. 

    HPML TestA loan is higher-priced for the HPML rules when:
    • APR exceeds APOR by 3.5 points for subordinate lien loans
    • APR exceeds APOR by 2.5 points for jumbo loans
    • APR exceeds APOR by 1.5 points for all other loans 
    QM Test: The QM test for "higher-priced" is very close, but slightly different. Therein lies the confusion. A loan is higher-priced for QM Rule purposes when:
    • APR exceeds APOR by 3.5 points for Small Creditor Portfolio QMs
    • APR exceeds APOR by 3.5 points for subordinate lien loans
    • APR exceeds APOR by 1.5 points for all other loans
    Higher-Priced Consequences: HPML & QM 
    Now let's look at the different consequences of being higher-priced under first HPML Rules and then QM Rules. 

    1. HPML Consequences: The consequences of a loan being an HPML are not, in my humble opinion, as terrible as many make them out to be. There are basically three consequences: 

    First, mandatory escrow applies. So you'll need to escrow for hazard insurance and property taxes. No big deal, right? Second, a full appraisal is required - no skating by with an AVM and drive-by if this happens to be a small home equity loan that you're fast-tracking. But there are exceptions for loans that satisfy Qualified Mortgage requirements; mobile home loans; construction loans; and a few other less likely situations. Third, a second appraisal is required where the Seller is flipping the house higher price. More precisely, it is required where either (a) Seller bought property within last 90 days and our Borrower is paying 10% more than Seller did; or (b) Seller bought property within last 91-180 days and our Borrower is paying 20% more than Seller did. 

    2. QM Consequences: The result of a loan being higher-priced for QM purposes works a little differently. A higher-priced transaction under QM loses the full "safe harbor" or complete presumption of compliance with the ability to repay requirements. So where a loan otherwise meets QM requirements, a loan that is higher-priced only receives a partial safe harbor. 

    With a full QM safe harbor there is a non-rebuttable presumption of compliance. With the partial QM safe harbor there is a rebuttable presumption of compliance. So any court or regulator assumes the lender is compliant, but the borrower has the ability to prove otherwise. While the QM Safe Harbor has not been tested in the courts, many are pessimistic about the value of the partial safe harbor. To speak plainly, it is my opinion the higher-priced QM is not much better than a non-QM, making it more important to avoid classification as higher-priced if possible. I would consider any higher-priced QM equivalent to a non-QM for risk purposes.  

    But note:
    • If the creditor is originating this as a Small Creditor Portfolio QM, it might still be safe under the QM test even if it is higher-priced for HPML purposes
    • If the creditor is originating this as a Non-QM, then it doesn't matter whether it is higher-priced for QM purposes - in either case we won't get the QM presumption of compliance. 

    Case Study
    We lock a 30-year fixed rate loan with a 5.27 APR on March 17th. By checking the FFIEC APOR calculator (available here), I see that the APOR that applies is 3.72. That means the APOR exceeds the APR by 1.55.  

    If this were a subordinate lien, then we're well within tolerance on both HPML and QM higher-priced tests. But it's not; this is 1st lien transaction. It's also not a jumbo loan, which would give us more flexibility under the HMPL test (but not QM). 

    To me, this example comes down to what category of QM we're working with (if any). If this is a Small Creditor Portfolio QM (or a non-QM for that matter), I'm not worried about this being higher-priced under the HMPL test. It will not be higher-priced for QM purposes. We can manage the escrow and potential appraisal requirements. 

    But if this is a Regular QM or GSE QM (aka Temporary or Fannie/Freddie QM), then to me that tips the scale. In this case, we have a loan that is BARELY higher-priced for both HPML and QM purposes. We're only .05 points over! I would take a hard look at how we can lower the APR enough to bring this under the threshold and avoid both HPML and QM issues in one fell swoop. 



    In Other News: 
    • **A correction from last week** - Richard Cordary actually said (speech here) that "community banks and credit unions did NOT cause the financial crisis." I omitted the word "not" last week and soon received several vocabulary-expanding rants against Cordray. Not what I intended!
    • Ellie Mae continues to impress with its free reports and online tools. Have you seen its Millenial Tracker tool? For example, I checked this tool for Worcester loans, which tells me that 88% are purchase, average FICO of 728, average appraised value of $260,000, average LTV of 88, 28% FHA loans, and more interesting data (date range May 2016 - July 2016). 
    • Did you see Tebow hit a homer 20 feet over the scoreboard in his MLB tryout yesterday? Epic!
    We all agree bureaucracy kills innovation, morale, and fun at work.  But how do we avoid it in the first place? This HBR article by James Allen called "How to Stop People Who Bog Things Down with Bureaucracy" takes an interesting stab at it. It discusses how to fight "energy vampires", for example by remembering that the opposite of keeping things simple is making things complex, not necessarily better. Another point made is to not let the "thinkers push out the doers" - to remember that the people getting the job done, day in and day out, are the most important people in the organization - not to let strategists over-run those executing strategy. 

      _________________

    "There's a silly notion that failure's not an option at NASA. Failure is an option here. If things are not failing, you are not innovating enough." 

    -  Elon Musk
    _____________






    Thanks so much for reading our weekly newsletters.  We're not always going to be perfect, but because we always do our best and try not to overpromise, we hope that we're always going to be trustworthy.  Your calls and e-mails are very helpful - please keep contributing.

      **These are our opinions. We're not authorized, or willing, to express those 
          of others.**  

     

    This article was prepared by Ben Giumarra with the support of other experts at SCA. Ben is a specialist in lending and regulatory compliance.

    SCA has consultants like Ben available to provide as-needed consulting support and advisory services. Specialties include risk management, quality control, system implementations and conversions, secondary markets, financial analysis, and other areas related to mortgage banking. 

    Hourly, retainer, and project-based options available. 

    Quick Links

  • August 24, 2016 9:13 AM | Anonymous

      About Us | Services | EmployersJob Seekers | Contact Us

    August 24, 2016
    How Will New HMDA Reporting Requirements Change the Way we Think About Broader Issues?
    A look ahead to the issues we'll face after the new HMDA Rule takes full effect.
    We know that the number of HMDA fields that will be required now will soon significantly increase. We can all predict the struggles we'll have in simply reporting correctly. But what can we predict will happen once regulators actually receive all this additional information?
     
    Well, let's consider one of the new fields in particular: Age. (And to give credit where credit is due, this is a question raised in last month's MMBA compliance committee meeting by Brian Bacci.)
     
    Under the new reporting requirements, regulators will run statistical fair lending analyses using Age as a factor for the first time. Currently, if we make too few loans to African Americans, or Females, or Hispanic Americans, (data we currently report) regulators will use those statistical tools to make us face the music.  In the future will we be worrying more about serving different age groups?
     
    Of course, some would say the CFPB itself doesn't have the best track record with age discrimination. But I'm sure that won't be a helpful response in our next audit.
     
    I'll be the first admit this does not feel like an imminent concern. But it seems interesting ... So I suppose we will have to look at age discrimination the same way we look at racial, gender, or other types of discrimination at some point in the future.  What would that look like?
     
    Now, I'm assuming your institution isn't openly and intentionally discriminating based on age (e.g. Bank policy discourages lending to "borrowers over 65 who are slow and clog up the teller line" or "borrowers ages 18-30 must meet higher underwriting standards due to the likelihood of their influence by the punk rock and video game subcultures") (a/k/a Overt Discrimination).  When most people get in trouble, it's because they're applying a neutral policy equally to all consumers that happens to have an unintentionally discriminatory impact on a protected group of persons (the regulators call this Disparate Impact).
     
    The classic example of a Disparate Impact is a minimum loan amount. Just because the Bank's policy not to lend under $100,000 at a time seems neutral on its face, and does apply equally to everyone, this is likely to disproportionately affect members of a protected class. Absent a legitimate business reason why we'd limit lending to a minimum of $100k, this policy decision will violate fair lending laws.  
     
    Let's look at a little case study to imagine a question that will arise now that we report Age ...
     
    Example - Assume 10% of loans are made to borrowers above 65 years of age but that the population of our lending area is 40% persons over 65. Assume also that we do not offer any reverse mortgage products, which would increase lending to this over-65 category.
     
    Question - Is the decision against offering reverse mortgage loans an otherwise neutral policy that applies equally to all consumers yet disproportionately burdens certain persons on a prohibited basis? In other words, does this decision have an unlawful disparate impact based on age?
     
    Analysis - End of the day, I think we win this one. We will need to prove that the decision not to offer reverse mortgages is "justified by business necessity." Here we look at cost and profitability. I think we can legitimately say that reverse mortgage lending, done ethically, requires significant additional expertise and expense that very realistically might not be profitable. We're not required to lose money to avoid violating fair lending rules.  If we can prove this, we can prove it's not a fair lending violation, even if it does happen to have a disparate impact on senior consumers. 
     
     
    **This is just an example of how increasing the number of HMDA fields will affect more than just our reporting requirements.  Maybe this particular example is a stretch. But Age is just one of the approximately 25 new HMDA fields. So what else will change?**


    In Other News: 
    • Read Richard Cordray's response to community bankers here. "As I have expressed in the past, the Bureau recognizes that community banks and credit unions did cause the financial crisis." 
    •  Rhode Island suing to get rid of an old Russian submarine removed from Providence waters after it sank in a storm in 2007 (previously used on the set of a Harrison Ford movie). 
    Yesterday some friends and I had a conversation regarding how to maintain profitability despite rising volume. Of course, you offer over-time, bring in temps (to the extent you can), and sometimes outsource services like SCA offers, such as appraisal and credit review. Naturally you've made permanent hires, although fewer than you would if you were in a more stable industry than mortgage banking (because only thing worse than being under-staffed is being over-staffed).
     
    Nobody in this conversation was so naïve as to think there's any kind of magic bullet. There's a dedication to training people, to a strong culture of team work, and an insane level of attention paid to efficient processes. I actually don't mean to help with any of these big topics, but this did lead to one smaller thought. How much time have you spent lately with compliance-related matters?
     
    At nauseaum we hear of the "landslide" or "avalanche" or "never-ending" new regulations and how we need to comply with all of them. And fair enough. But how often do we make it harder for ourselves than we need to? How often we do have an e-mail chain with 10 executives dating back 2 months discussing one small issue within a set of huge new requirements?
     
    Step 1 in being good at compliance is being compliant; but step 2 is doing it quickly. And Step #2 is almost as important; we need to provide clear and tangible guidance to employees in a timely manner - otherwise compliance requirements will slow our processes down dramatically.

      _________________

    "The United States is definitely ahead in the culture of innovation. If someone wants to accomplish great things, there is no better place than the U.S." 

    -  Elon Musk
    _____________




    Thanks so much for reading our weekly newsletters.  We're not always going to be perfect, but because we always do our best and try not to overpromise, we hope that we're always going to be trustworthy.  Your calls and e-mails are very helpful - please keep contributing.

      **These are our opinions. We're not authorized, or willing, to express those 
          of others.**  

     

    This article was prepared by Ben Giumarra with the support of other experts at SCA. Ben is a specialist in lending and regulatory compliance.

    SCA has consultants like Ben available to provide as-needed consulting support and advisory services. Specialties include risk management, quality control, system implementations and conversions, secondary markets, financial analysis, and other areas related to mortgage banking. 

    Hourly, retainer, and project-based options available. 

    Quick Links

  • August 17, 2016 9:12 AM | Anonymous

      About Us | Services | EmployersJob Seekers | Contact Us

    August 17, 2016
    What to do with dead borrowers (more specifically, their "successors in interest"). 
    Who says servicing can't be interesting?
    It's an unfortunate reality, your mortgage borrower passes away and leaves someone behind who wants to live in/own the house. Can they afford the mortgage payment? Is there a chance this is just a scam? How do we protect the borrower's private information but also take care of this poor person who just lost a loved (presumably) one?

    Get ready to be pulled in a dozen different directions. On one hand, we need to protect the deceased borrower's private information. But federal regulators (and human decency) want us to make it as easy as possible for successors-in-interest to handle the borrower's affairs. Another key concern is to promote home retention; to do everything possible to allowed loved ones to keep the home of a borrower who has passed away.

    Train to avoid these mistakes!
    • Giving away private information without verifying that the primary borrower is actually deceased. 
    • Making it too difficult for a successor to access the necessary information
    • Not doing enough to help the successor stay in the home (have you considered a modification?) 
    Why Now?
    The CFPB's new servicing updates have just taken effect, and they include some changes in how we handle successors-in-interest. 

    There are three things to know about how successors-in-interest are affected by this new set of rules:

    1. New definitions of "successor-in-interest"
    2. Clarify how servicers are supposed to verify the successor-in-interest's identity and ownership interest
    3. Pre-existing rights and requirements as to borrowers now applied to successors-in-interest (basically a successor now has the same rights as a borrower)

    #2 - How to verify successor-in-interest's identity and ownership interest
    Well since we can't go through every possible issue, let's pick one. Let's talk about how to verify that this person claiming to be our borrower's heir (or whatever) actually has a right to this information. 

    So the general behind this Rule is this: While we need to guard against fraud and protect private information, Federal regulators are concerned that our industry is making it too difficult for successors-in-interest to obtain information about the loan. 

    So here is a list of requirements related to this verification of the successor-in-interest's identify and ownership interest:

    1. Upon receiving a notice of death, we need to promptly facilitate communication with any successors
    We do not need to become Private Eyes and search for successors, but we do need to proactively communicate with them once who we know they exist. 

    "Promptly"? There's no specific definition. They say it will depend on the individual circumstance. Guidance does give an example to explain in a normal instance it should take "significantly less" than 30 days. 

    2. If in response to a written request, we are required to promptly provide a written response listing all documents that we will require to confirm the successor-in-interest's status 
    According to the CFPB explanation, they wrote this rule because of all the complaints they received from consumers who just never heard from the servicer. So they wrote into the servicer claiming to be a successor-in-interest, but then the servicer never responded!

    3. We can only require those documents that are reasonable in light of the laws of the relevant jurisdiction.
    Apparently, there are a large number of servicers who require a large amount of information that is completely irrelevant to confirmation of the successor's status. Well because of them, we have this rule!

    What exactly are those? They'll vary state-to-state.  The Rule examples say they might include a death certificate, executed will, or a court order. (Remember not to require all if one will do.) In the case of the death of a spouse, we might require a death certificate and the recorded deed (which shows they both own the property). Note: We couldn't require the deed if we already have it in our possession; that wouldn't be "reasonable."


    4. Upon receiving this documentation, we must "promptly" make a decision and "promptly" communicate with the successor
    There's that word again. 

    5. We must have written policies and procedures on these Rules (this does not apply to "small servicers") 
    Remember small servicers have a servicing portfolio of 5,000 mortgage loans or less.



    Here are some extra materials on this topic that you might find helpful:  Fannie Mae Directive on deceased borrowers, CFPB Bulletin on Successors in Interest, the CFPB's new servicing rule updates (search the word "successor" because there are 900 pages), and the CFPB Summary on all the 2016 servicing changes. 



    In Other News: 
    • Are you clear (as mud) on how to disclose mortgage insurance on the LE and CD. What about how to handle mistakes that occur (i.e. what tolerance level applies to up-front or monthly payments disclosed on the LE/CD?). Not sure that the CFPB has taken a clear stance, but here are the opinions of three mortgage insurance companies: National MI, MGIC, and Arch (and of course that means that we know what United Guaranty's position will be)
    • MBA reports that delinquency at its lowest rate since 2006
    • Kind of cheesy but I really like this interview with Jay Leno where he gives out 5 pieces of financial advice (not a joke) ... "I had two jobs a a kid, one at a fast-food restaurant and one at a Ford dealership. And I'd put the money from one job in one pocket and spend it. And the other paycheck I'd save. I do that now. I have always banked my Tonight Show money and lived off the stand-up. I have one credit card, no mortgage, and I don't lease."


    Do we consider harm to outweigh benefits? Should we? Is losing $100 from your wallet any different than not using a $100 coupon at Lowes? Is a loss on 5 mortgage loans gambling with Mandatory delivery somehow weighted heavier than the gain on the other 100 loans that year? Shouldn't we accept the loss on those 5 loans? By taking extreme measures to eliminate risk (harm) are we leaving much bigger opportunities on the table (benefits)? 

     

      _________________

    "There's a tremendous bias against taking risks. Everyone is trying to optimize their a**-covering."
    -  Elon Musk
    _____________




    Thanks so much for reading our weekly newsletters.  We're not always going to be perfect, but because we always do our best and try not to overpromise, we hope that we're always going to be trustworthy.  Your calls and e-mails are very helpful - please keep contributing.

      **These are our opinions. We're not authorized, or willing, to express those 
          of others.**  

     

    This article was prepared by Ben Giumarra with the support of other experts at SCA. Ben is a specialist in lending and regulatory compliance.

    SCA has consultants like Ben available to provide as-needed consulting support and advisory services. Specialties include risk management, quality control, system implementations and conversions, secondary markets, financial analysis, and other areas related to mortgage banking. 

    Hourly, retainer, and project-based options available. 

    Quick Links

  • August 10, 2016 9:11 AM | Anonymous

      About Us | Services | EmployersJob Seekers | Contact Us

    August 10, 2016
    Should you be disclosing Closing Disclosures without all the contact information?
    And by "contact information" I mean all the stuff on page 5 related to the lender, real estate brokers, and settlement agents. 
    You know, it sure did prove tougher than anticipated to collect license numbers, e-mail addresses, and even names of settlement agents and real estate brokers so we could disclose that information on the CD. 

    But how strictly should you be following this requirement? No big deal if you don't get it? Maybe it's okay if you normally don't get it on the initial CD but always get it on a revised CD?

    So I'm sure by now you're aware that the CFPB's long-awaited update to TRID has been released. If you're living under a rock, you can find the release here. Keep in mind, this is only a proposed rule. So while many thing included are "clarifications" (meaning they help immediately), there are  a number of new changes that won't affect us for months. 

    "What if we don't have the contact information when we need to disclose?" 

    Well at this point the battle's already lost. Of course you don't want to delay a closing because you're waiting for contact information. And certainly it is commonplace to have contact information missing on an initial CD and then to ensure the correct contact information is included on a final CD at closing. But the point I want to get across is that we shouldn't let it get to this point - we should be making an effort to get this information sooner.
     
    Rationale. We're required to disclose contact information to help borrowers contact these critical parties in the 3-day waiting period after receiving the CD.  Our adding this only on a later revised CD is better than nothing, but doesn't accomplish the goal the Rule is intending to accomplish here.
     
    We're required to use the "best information reasonably available" to disclose these items on the CD. This standard requires us to exercise "due diligence in obtaining the information."

    If you tuned in to the CFPB's April 12, 2016 webinar, they explained that leaving property taxes blank on the LE would not satisfy the "best information reasonably available" standard. And that's only on the LE! I'm pretty sure regulators are going to expect we were able to track down these people sometime before the CD has to be disclosed. And I'm pretty sure regulators are going to think it's easier for us to get contact information than precise property tax estimates. Indeed, the TRID Preamble actually says, "[T]he [CFPB] does not believe it is particularly burdensome for a creditor to obtain the name and contact information for the real estate brokers in the transaction. The creditor could obtain such information from the real estate purchase and sale contract or from the consumer directly." (p. 1177). 

    Just my two cents.


    In Other News: 
    • Tim Tebow taking a shot at major league baseball? ... maybe there's hope for you yet, Justin (although I think your mortgage banking future looks very bright)
    • "7 Things Buyers Should Never Overlook At Open Houses" - interesting article to pass along to your borrowers 
    • Hey don't forget about all the mortgage servicing regulations that took effect recently. Read more about them here
       
    I'm a big believer that you need both competence and compassion to be considered good at any job. Imagine an LO with the best rates backed by the fastest origination team who doesn't take a moment to sympathize with a borrower whose house is worth $50,000 less than they expected. Then again, imagine the friendliest carpenter ever who orders the wrong size doors and windows. Neither one can be considered very good at their job, in my opinion. 

      _________________

    "People should pursue what they're passionate about. That will make them happier than pretty much anything else." 
    -  Elon Musk

    ______________





    Thanks so much for reading our weekly newsletters.  We're not always going to be perfect, but because we always do our best and try not to overpromise, we hope that we're always going to be trustworthy.  Your calls and e-mails are very helpful - please keep contributing.

      **These are our opinions. We're not authorized, or willing, to express those 
          of others.**  

     

    This article was prepared by Ben Giumarra with the support of other experts at SCA. Ben is a specialist in lending and regulatory compliance.

    SCA has consultants like Ben available to provide as-needed consulting support and advisory services. Specialties include risk management, quality control, system implementations and conversions, secondary markets, financial analysis, and other areas related to mortgage banking. 

    Hourly, retainer, and project-based options available. 

    Quick Links

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